Prosperity Watch Issue 25, No. 2: Senate Budget Cuts Taxes for Wealthy, Shorts Investments in Public Priorities

 

Proposal falls far short of what is needed, benefits primarily wealthy

North Carolina has cut funding for public structures deeply since the start of the recession. These cuts were the result of a revenue collapse caused by the economic downturn as well as policymakers’ cuts-only approach to balancing the budget for several years. But as state revenues begin to slowly recover from the recession, policymakers have the opportunity to renew investments in public priorities.

The $20.6 billion budget released by Senate leadership would slightly increase spending over the base budget but it still falls far short of what is needed to maintain current service levels across many of our public priorities. Senate leadership could have lessened this gap by fully reinvesting the slight uptick in revenue growth in their proposal. Instead, they chose to include their tax plan—which primarily benefits the wealthy and profitable businesses—in their budget, reducing General Fund availability by more than $770 million over the biennium.

As the chart below shows, state investment in almost every area of the budget would be far below pre-recession levels under the Senate proposal in FY2013-14. When compared to state spending when recession began (FY2007-08, adjusted), the proposal reflects a diminished baseline budget, with appropriations down $1.9 billion, or 8.5 percent. As such, this proposal would continue to significantly underfund basic public services and structures.

Strengthening state investment in public priorities will require state policymakers to make the right balance of budget and tax policy choices.  But by linking their tax plan—which is based on the false premise that income taxes are a barrier to economic growth—to their budget proposal, the Senate pulls back prematurely at the first sign of recovery before state revenues fully recover. Tax cuts will make it much more difficult for North Carolina to rebuild the vital public structures that are the foundations of a strong economy. 

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